The U.S. just experienced the most active first half of a year in over a decade for middle-market M&A transactions, with 5,260 deals completed. As more and more companies realize the potential value of mergers and acquisitions, the number will likely only continue to climb. However, as the high number of failed M&A deals in 2016 showed us, not everyone is adhering to the best practices that can make or break a deal.
In our experience at Symmetrical Investments, one of the primary aspects of the M&A process that impedes success is integration – partly because integration is not a “one-and-done” step. There are three major phases to a proper integration plan.
1. Pre-offer analysis
2. Setting the course
3. Post-merger announcement and the first 100-days
Read on to better understand each phase, and how an M&A advisor can help you facilitate a successful deal.
Pre-Offer Integration Analysis
Many companies are now focusing on integration much earlier in the M&A process than in previous years, and that’s a good thing. In fact, you should start laying the groundwork for the integration process long before a deal is ever announced.
The first step you should take after selecting a potential acquisition is to form an integration team of decision makers who will be highly involved in the entire acquisition process. Their job will be to analyze potential acquisitions and make recommendations about how to proceed, starting with a strategic and cultural compatibility analysis.
Strategic compatibility refers to the level at which the two involved companies have similar management structure, administrative processes, resource usage/leverage, customer base, and financial management systems. Cultural compatibility refers to the level at which the two involved companies have similar management styles, values, demographics, geography, and overall attitude.
With an understanding of the synergies between the companies, you can then decide on the level of change needed and speed. Consider the backlash that may be caused by both. There may be employee resistance to a large degree of change or a lack of attention to detail if it is done too quickly. When deciding how to move forward, focus on a formula that minimizes the redundancies between the two organizations, keeps a steady momentum of positive change, and reduces uncertainty among all stakeholders.
Setting the Course
By the time you’ve completed the initial analysis, you should be working with your M&A advisor on preparing an offer, and should take additional steps to prepare for the anticipated transaction.
First, set the course by communicating with your stakeholders and make them feel involved in and assured by the process. Get buy-in among your leadership, so that they can prepare to align with the potential acquisition from the top. Engage your employees to make sure they are ready for the potential changes that lie ahead.
Second, start to create detailed planning documents. Your integration team, including your M&A advisor, needs to formulate your day-one post-merger plan and your first 100-days post-merger integration plan. These plans will serve as a roadmap for every aspect of integrating the two organizations, based on your initial compatibility analysis. Your team should also begin drafting a corporate policy integration plan to ensure that the new organization will have a pre-existing structure codified once it is formed.
Post-Merger Announcement and the First 100 Days
Now that you’ve made an objective analysis, started to draft integration plans, set the course from the top down, and communicated early, you should be preparing to sign the agreement and make the grand announcement. It’s time to execute.
Few days matter as much in the M&A process as day-one post-merger. You can set the tone for a successful merger across the board by starting out with a clear plan for how your company is going to look and act from the start. Corporate leadership should lean on the integration team and the roadmap they created in order to hit the ground running.
Finally, carry out your first 100 days plan, which your integration team created during the planning phase. The experienced team at Symmetrical works directly with the integration team and leadership to help keep the momentum going and ensure that you stay on course.
From day 101 and beyond, the integration should be a self-fulfilling prophecy. With a good plan, your new organization can become a shining example of corporate synergy, leveraging each company’s efficiencies.
If you’re considering a merger or acquisition, it’s in your best interest to get started as early as possible. Here at Symmetrical, we are committed to helping your company identify and secure the best deal it can and integrating as efficiently as possible. Contact us today to get started.
Growing up we were constantly reminded of the importance of being organized and prepared and making sure that our responsibilities were being fulfilled. These two concepts have followed us now into our daily tasks both at home and in the workplace, but how well do we abide by them?
These attributes are important for any business owner, especially when a transfer of ownership is approaching. Making sure you have all of the necessary documents, including accounting, legal, and insurance paperwork will allow you to not only save time, but also increase your business’s valuation upon transfer.
Below we have listed some tips on how to ease the transfer process and get the most out of your business:
Identify proper documentation
Before you can organize anything, you must first know what it is that you will need for the transfer. Ask your M&A Intermediary a detailed Due Diligence List, so that you don’t waste time and energy gathering items that won’t add value in the long run.
Streamline your documents
Once you identify the necessary documentation, you need to organize your documents and systems. This means keeping financial records up-to-date (audited statements are ideal but if you are not going to go to that level, at least provide hard monthly closes), gathering contracts and revisiting corporate documents. Try to keep all of this information digital so that it can be easily shared. Building a Virtual Deal Room is ideal.
Create an advisory council
Professionals who know your business inside and out will be the most helpful when it comes time to transfer your company. Consider setting up a strong management team or advisory council to stay on top of transaction requirements. This will allow you to stay on track with your daily tasks, while still looking out for your business’s future.
It is no wonder that business value increases when owners have all of their documents aggregated, including easy access to accounting, legal, insurance, and other information necessary for a transaction. Make sure that you are prepared and organized in order to get the most out of your business. Bottom line is that ease of transferability equates to increased valuation.
Our team has significant experience helping business owners prepare for and complete transactions, including mergers, acquisitions, and management buyouts. Contact us to learn more.
Symmetrical Advisory, Inc. served as the exclusive advisor to Hillside Acquisitions Group which has added Alyan Pump, LLC to their growing list of portfolio companies. Symmetrical Advisory enabled the acquisition of Alyan Pump, a leading pump systems manufacturer and service provider.
Headquarted in Folcroft, Pennsylvania, Alyan Pump is a designer and manufacturer of pumps and pumping systems and offers repair services and parts to clients across the United States. Since 1955, the company has served an expansive commercial client base that includes companies like DuPont, Marriott, Merck, Hilton, Peco, Philadelphia International Airport and sports facilities like Citizens Bank Park, Lincoln Financial Field and the Wells Fargo Center.
Chad Byers, Managing Partner of Symmetrical Advisory, said, “Our team was proud to help in facilitating the acquisition of Alyan Pump by Hillside Acquisitions Group. The quality of the company’s products and long-term customer relationships are extremely impressive. With a partner like Hillside Acquisitions Group, Alyan Pump will continue its’ product innovation and growth prospects well into the future!”
For more information visit www.alyanpump.com/.
In the simplest terms, working capital can be defined as current assets less current liabilities but ultimately it is the amount of operating liquidity or cash available to a business at a given point in time. Working capital is an essential part of the day to day operations of a business and is just as important as employees and physical assets.
When selling a business the buyer will often require a normalized level of working capital so that the business can continue operating seamlessly and fulfill obligations to customers and creditors post-acquisition.
In a merger or acquisition, one of the most difficult parts of the transaction is often negotiating the amount of working capital that remains with the original business. Naturally this can be an emotional topic for the seller, and should be taken care of as early as possible. In nearly all transactions there will be some form of working capital adjustment as part of the purchase price agreement. A mergers and acquisitions advisor is instrumental in getting both parties to agree on the way working capital will be calculated, making for a much smoother transaction.
What is considered in a working capital adjustment?
Advisors will begin by looking at the selling company’s current assets over current liabilities on a monthly basis. Typically this process will start with the current month and go backwards over the most recent twelve trailing months but could go back as far as the past thirty-six months. It will be critical to understand the accounts receivables and how quickly the company collects revenue (and if all of this A/R will actually come in). It is also imperative to understand the current liabilities and the relationships associated with these debts. Advisors will keep in mind the type of business, industry, demand, market changes, competition, seasonality, and more.
How does this affect the sale price?
We can best illustrate this using a hypothetical example. For instance, a transaction may have a purchase price of $25M based on the seller including $4M of working capital at closing. The purchase price would depend upon the final amount of working capital provided by the seller. If the seller delivers only $3M of working capital, instead of the original $4M, the purchase price would be adjusted down to $24M. Similarly, if there was $5M of working capital at closing, the transaction would increase to $26M or the seller would be allowed to remove $1M of assets from the business and retain the $25M transaction value. Note: sometimes buyers and sellers will agree to a range or band and if the working capital falls within this range, there is no adjustment. Using the same example above, if the Working Capital came in within $1M of the $4M Working Capital Target (in either direction), there would be no adjustment.
Working capital is involved in every merger or acquisition transaction. It is vital to have a trustworthy advisor working on your behalf. Armed with decades of knowledge and your best interest at heart, the right advisory can ensure you walk away satisfied with your deal.